Unemployment rises in May

Unemployment is set to increase rapidly in the coming months, after rising at its fastest pace for two years, as the economic slowdown takes hold.

The Office for National Statistics said today that headline unemployment jumped 38,000 in the three months to April from the previous three months. It is the second month running that the ONS has reported a rise in the jobless total and is the biggest increase since mid-2006.

Though the figures brought relief to the Bank of England by showing wage growth slowed in spite of spiralling food and petrol prices, the spectre of rising unemployment is even more bad news for the government.

Gordon Brown and his chancellor Alistair Darling are hoping to re-establish a reputation for fiscal competence damaged by the Northern Rock affair, U-turns on tax changes and continuing evidence that the economy is being dragged down by slowing growth and rising inflation.

A sharp rise in the number of people out of work would kill off No 10's hopes that the downturn in the housing market can be reversed. The number of people out of work on the labour force survey measure is 1.64 million, equivalent to 5.3% of the workforce, up from last month's 5.2%.

The rise in joblessness was concentrated in the north-east and West Midlands and has particularly hit young people and the self-employed — likely to be plumbers and other trades who have been laid off by housebuilders and construction companies.

The claimant count measure of joblessness, which only considers those drawing benefit, suffered a fourth monthly increase in a row, rising by 9,000 to 819,300 in May. April's figure was revised to an 11,500 rise — the biggest for two years. The ONS said the jobless numbers had started rising after a long period of decreases.

"Like a blow upon a bruise, the near-daily revelations about our deteriorating economy are as painful as they are expected," said Vince Cable, Liberal Democrat Treasury spokesman.

"The reality is that normal people are now paying the price for an economy that Gordon Brown allowed to get hopelessly out of control.

"As the housing market and consumer demand continue to fall, it is inevitable we will see unemployment rise."

A rise in the working-age population pushed up employment numbers to a record 29.55 million, but the rate of increase in the number of jobs slowed sharply to the extent that the employment rate remained at 74.9% of the workforce.

The economy has slowed sharply in recent months in response to the credit crunch and as higher food and petrol prices have sapped consumers' ability to spend on other things.

Economists have been expecting unemployment to rise and said this was now happening in earnest.

The figures showed another drop in manufacturing employment to a record low of 2.9 million while the government's efforts to trim the public sector resulted in a drop of 20,000 such workers in the latest quarter compared with the previous quarter, and a fall of 39,000 from a year ago.

The impact of the credit crunch showed up in the second quarterly drop in jobs in finance and business services, where 20,000 jobs were lost. The deteriorating jobs market appeared to keep the lid on pay in spite of people facing much higher food and petrol prices.

Earnings growth in the three months to April slowed to 3.8% from a year earlier, down from 4% in the three months to March. For April alone, wage growth slumped to 3.2% from 4.7% in March.

The Bank of England's monetary policy committee is worried that strong economic growth and rising oil prices will put upward pressure on pay, but there is no sign of that happening at the moment.

The MPC has cut interest rates three times since December, to 5%, in response to the economic slowdown but has now paused because of a rise in inflation to 3%.